Many of us have gotten the notification that we are eligible to become parties to a class action lawsuit. Oftentimes, you don’t find out that you’re an eligible party member until it’s time for your settlement, often a discount or a small amount of money. It’s often considered a positive thing to suddenly find that you’re eligible for some money for a harm caused by a business that you weren’t even aware about. But what are the downsides of filing a class action lawsuit?
What is a Class Action Lawsuit?
A class action is a procedural device that permits one or more plaintiffs to file and prosecute a lawsuit on behalf of a larger group, or “class”. (Source) The members of the class are all represented by a plaintiff or group of plaintiffs, and they advocate for the entire group, in an attempt to get a settlement for the whole group.
What are the positives of filing a class action lawsuit?
A lot of times, the settlement you receive from a class action lawsuit is very small. Would it have been worth it to you to file that lawsuit by yourself? Absolutely not. But when all those small amounts are added together, the total payout is much more significant, and much more worth it to the attorneys to file. This allows people to get some recompense for the harms that were done and the company isn’t allowed to “get away with” the wrongs they did.
Another big advantage is that all the claims are considered equal. If one person sues a company and wins a lot of money, the company might be bankrupt before a second person is able to sue. With a class action lawsuit, everyone is equal, so you aren’t at risk of the company running out of money before they get to you.
What are the downsides of filing a class action lawsuit?
The biggest downside of filing a class action lawsuit is that if the plaintiffs lose, and you’re a member of the class, you can’t go and file your own lawsuit. And many times, you have to opt out – you’re automatically considered a member of the class. So if you think that your damages are higher than the rest of the group, you need to opt out and not be part of the class action lawsuit.
In a class action lawsuit, the named plaintiffs are the ones who make all the decisions for the class. You may not agree with those decisions, or think that the settlement shouldn’t be higher. In a class action lawsuit, you’re stuck with the decisions that the named plaintiffs make.
If you are the one who chooses to file the class action lawsuit, you are then responsible for representing all of the other members of the class. That can be a daunting task.
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Megan is a 30-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:
In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance. It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information. It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck. While that was working for me, clearly I needed a better plan.
While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.
Except that’s not what an emergency fund is for.
So I did a lot of research, read a lot of blogs, and decided that I needed a plan. I needed to budget. I needed to know what I was spending my money on. I needed to prepare for the future.
I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way. I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.